Firms plead ignorance in NJ donation breach

Blackstone, Centerbridge and Welsh Carson will not see commitments from New Jersey yanked following revelations that the firms unwittingly broke campaign donation rules.

Four US investment firms were relieved recently to learn that investments totaling $375 million from New Jersey’s $68 billion pension were not imperiled by roughly $6,090 in improper political donations made by employees of the firms.

State officials granted The Blackstone Group, Centerbridge Partners, Welsh Carson Anderson & Stowe and Omega Advisors waivers from a pension policy that bars investment firms from contributing to state candidates for public office.

The State Investment Council, which manages New Jersey’s pension, determined the donations were “unintentional and inadvertent”.

The firms ran afoul of the policy after employees made campaign donations to candidates in the state’s governor race, which ended in October with Republican Chris Christie claiming victory over incumbent Jon Corzine.

The GP pleas for waivers demonstrates the relative obscurity the policy had until now, although it also demonstrates the foresight the pension had in enacting the rule, which was established in 2004, a year before the state legislature authorised alternative investments.

New Jersey quietly sent letters to all its investment managers reminding them the policy barred them from contributing to state candidates for office, prompting internal reviews among the GPs, according to a source close to the pension.

The policy waivers come at a time when other US pensions have found themselves caught up in scandals involving interaction between elected officials and investment managers,

New Jersey’s policy forces fund managers working with the pension to refrain from making political contributions to any candidate for governor or the state legislature or any state party or political action committee. The policy also applies to placement agents working for a fund manager engaged with the pension.

Violations of the rule can result in immediate termination of the contracts with the investment firms. Exceptions to the rule include employees of investment firms who make donations to state candidates to whom they are entitled to vote.

The Council may grant waivers to the policy if it finds the investment firms demonstrate the contribution was “unintentional and inadvertent”.

A senior managing director with Blackstone made a $1,000 contribution in January 2009 to a gubernatorial candidate. Blackstone told the pension no other senior executive knew about the contribution until September, despite an internal firm policy that all political contributions be pre-approved by the firm’s chief legal officer.

Blackstone’s chief legal officer “directed” the offending executive to get the money back, which the executive was able to do. New Jersey made a $100 million commitment to Blackstone’s fifth private equity fund in 2005. Since the political contribution was made in 2009, the council determined the contribution to be “unintentional and inadvertent”, and granted the exemption.

Centerbridge’s violation came when an associate bought a $90 ticket for an event benefitting a gubernatorial candidate. Centerbridge discovered the purchase and the associate got the money back. The council granted a waiver because the contribution did not exceed $250. New Jersey committed $100 million to Centerbridge in 2007.

A general partner with Welsh Carson made a $1,500 contribution to one of the governor candidates in March 2009, and was unaware of the pension’s policy. The GP has requested that the money be returned. The council granted Welsh Carson a waiver because it committed $100 million to WCAS XI in October 2008 and felt the contribution was not made to influence the investment.

Also, an executive with Omega made a $1,500 contribution to a governor candidate and paid $2,000 for tickets to a concert benefitting the candidate. The candidate asked for and received the money back. The pension committed $75 million to Omega in 2007.

Other agencies have taken up the call to better regulate the political process involved in public pension investments.

The US Securities and Exchange Commission is considering a nation-wide rule that would bar private investment firms and their executives who have contributed to elected officials in a position to influence pension investment decisions from working with or soliciting money from the pensions.